I have been investing in REITs for more than a decade and thought it would be a good time to pen down my personal thoughts.
Generally speaking, people who invest in REITs need to understand the nature of REITs and what they truly want. For me, it is cash flow and stability. Capital gain is a bonus and should not be the primary focus but a supplementary factor. Yields typically will not be very high, but they should not be too low either. REITs are usually priced according to risk, and risk is real. If we misunderstand this, then we will learn from Mr. Market’s temperament. There are many Reits which I personally feel is not of investment materials.
“This serene landscape represents the calm, steady growth and stability that wise REIT investing aims to achieve—focused on reliable cash flow and long-term value rather than quick gains.”
There are a few things to watch in REITs:
Landlord collecting rent – DPU (Distribution Per Unit) and yield.
If the yield is too high, something may be wrong or there is a risk you are taking. If it is too low, are you investing in REITs mainly for capital gain?
Rights Issue
We cannot escape it. Embrace it and take advantage of it, but you don't have to subscribe if the risk or discount is not in your favor. Strong REITs typically perform well for decades with good DPU even after dilution.
DPU growth or stability
The plan is to look for something stable in DPU, and if the REIT is well managed, there will be some DPU growth.
Forex Volatility
The DPU yield is usually in the 4% to 6% range. Forex changes can be larger than that in a year and may wipe out your return in real terms. This is a risk one needs to consider.
Cost of funding
Since we look for stability, the goal is to have stable funding costs. Lower costs help improve DPU. Fixed loans and currency hedges help protect against volatility. We want both with optimal risk considerations.
It is quite rare to have huge capital gains from REITs, assuming all else is equal. The managers cannot perform magic to uplift the REIT to extraordinary levels. Good managers may improve performance and ensure good total returns. However, Mr. Market can have significant mood swings that allow us to buy low and sell high. These swings are not just 5% to 10% fluctuations, which may not be worth the time and risk of churning.
Personally, Rebalancing across different market instruments to ensure cash flow stability and growth at the portfolio level. This may not suits everyone. dyodd.
Cory Diary
2025-0905
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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.
